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Investors sue to block Heinz takeover

Investors have attacked the takeover of H.J. Heinz by Berkshire Hathaway and 3G Capital Management, arguing that the deal undervalues the global ketchup giant and rewards company insiders at the expense of

Investors are attacking the takeover of H.J. Heinz by Berkshire Hathaway and 3G Capital Management, arguing that the deal undervalues the global food giant and rewards company insiders at the expense of shareholders.

Two federal shareholder lawsuits were filed in Pittsburgh, where Heinz is headquartered, on Feb. 15, the day after the takeover was announced for $72.50 per share, a 20% premium to the value of the company's shares at the time.

"The proposed acquisition significantly undervalues Heinz," says the civil complaint filed on behalf of shareholder James Clem. "Due in no small part to the company's recent strong growth, just a week ago the stock hit an all-time high of $61 per share."

Additionally, the lawsuits allege that the proposed takeover resulted from "an unfair sales process" aimed at locking in famed investor Warren Buffet's Berkshire Hathaway and 3G Capital as the only possible buyers.

Heinz board members and management back the deal because they stand to receive more than $400 million for an estimated 5.6 million shares of "illiquid "holdings, the lawsuits allege. Additionally, insiders "will also be handsomely rewarded with millions more in special change-in-control benefits if the proposed acquisition closes," according to the Clem complaint.

The lawsuits also allege that Berkshire Hathaway and 3G Capital got several takeover-protection devices as part of the deal, including a provision that bars Heinz from providing company information to potential competing bidders "except under very limited circumstances."

"These onerous and preclusive deal protection devices operate conjunctively to make the proposed acquisition a fait accompli and ensure that no competing offers will emerge for the company," the Clem lawsuit says.

The actions seek to block the proposed acquisition "unless and until the board adopts and implements a fair sales process."

Heinz corporate spokesman Michael Mullen says the company has no comment on the lawsuits.

Heinz shares were down six cents at $72.14 in early afternoon trading.

News of the shareholder lawsuits came after the FBI announced that it was working with the Securities and Exchange Commission in the market regulator's investigation of suspicious options trading in Heinz shares the day before the acquisition was announced.

The SEC last week said that it had obtained a court order freezing a Zurich account used to make options purchases that could generate a more than $1.7 million profit.